Hey everyone! Today I have a post for my debt payoff series. Many of you have e-mailed me and said that you have LOVED this debt series because you are able to hear about so many different views of debt payoff stories. Glad I can keep this series alive and going! Be sure to come back tomorrow for a $40 Novica giveaway.
Hi everyone! My name is Justin and I write at The Frugal Path. I'm excited to share my path into debt today.
For the past five years my wife and I have been struggling to pay down our consumer debt. While it has always been below the amount carried by the average American household, $15,000, it still acts like a parachute on the back of a race car and slows our progress to financial freedom.
The Money Pit
As a child The Money Pit, staring Tom Hanks and Shelley Long was one of my favorite movies. The movie opens with a couple purchasing a beautiful old house. It's perfect and doesn't need any work, or so they've been led to believe. However, the sweet couple had been swindled and the house needs a complete overhaul. This isn't a small 1,000 square foot starter home, like mine. It's a big beautiful country house with every inch in need of repairs.
A similar story unfolded when we purchased our very first house in 2007. The housing market was softening and we thought our house was a steal of a deal, (If I only knew). It needed a lot of work. Before moving in we replaced the furnace/AC, windows, garage door and entry doors. Oh, there was also a small mold problem in the attic and we had to tear out the finished basement for the same reason (only on a much bigger scale).
We were unaware of many of these issues when we put our offer in. Most of the problems were discovered during the home inspection, but our inspector and agent told us that we were getting a good deal. They also knew we had a decent chunk saved up for the down payment and talked us into using the money to fix up the house instead.
Our gut was telling us to back out. In fact, the words came out of my mouth a few times. However, the inspector and agent “assured us” that the house was still a deal and we could ask for a reduced price. So we listened. If you're ever purchasing a home, go with your gut feeling after the inspection. You may end up losing the inspection fee, but it could save you a lot of money.
We weren't living above our means.
Consumer debt can be pretty vile and toxic to your financial situation. With high interest rates and no tax breaks associated with it, credit card debt has very few virtues and plenty of pitfalls.
Every so often I would watch a talk show or personal finance pundent on television interviewing families deep in debt. Often these people live far beyond their means with weekly shopping sprees, extravagant vacations and many times their houses were four or five times the size of mine with mortgages to match.
Our debt wasn't caused by an extravagant lifestyle. It came from a home in need of repairs. Surely we were better off financially than these people.
Or were we?
I had to face a simple fact, we were in denial about our financial situation. When it came to everyday expenses, we were living within our means. But we didn't plan for the future. When our cars unexpectedly broke down we charged it. When the roof of our lovely house began leaking two years ago did we pay with plastic or paper? Plastic please.
Living beneath your means doesn't mean just ensuring that you have enough money to cover everyday expenses. It also requires a plan and a rainy day fund for when emergencies rear their head. If you can afford these costs on top your regular living expenses, then you really are spending less than you make.
You Need a Plan
It has taken us far longer than it should have to pay off our debt. Since 2008, every single extra dollar that we had was thrown at the debt and it was rapidly shrinking. In fact, we were on track to have the debt gone but a lack of planning continuously threw a wrench in our plans. There were several car repairs, the new roof and, well life in general kept getting in the way.
From the tail end of 2011 thru September of 2012 we had basically given up. It seemed as though we'd never get out from under our debt. I finally pulled myself out of despair and began blogging about our financial situation. It was a way to stay motivated and learn new methods for managing our money. We began putting some of these techniques to work and slowly increased side income.
Our path to financial independence is looking possible, it's just a matter of taking the first steps. We learned a valuable lesson from our roof and no longer throw every dollar towards the debt. We now allocate a quarter of our extra cash towards an emergency fund. It may take a bit longer to pay down the debt, but if Murphy visits us we'll have an account full of cash to rub into his face.
What obstacles have you faced with your personal finances?
How did you kick Murphy to the curb?
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I am working (again) to get my baby emergency fund ($1000) refunded. Then- intensity time! As a single person, it's hard to stay motivated because if I blow it- well it doesn't directly affect anyone. That's my main obstacle- staying motivated.
It can be very difficult to stay motivated. This is why it is so important to celebrate tiny victories along the way. For every $2,500 or so paid off of our credit card debt, we allow ourselves a night out. That's once every month or two, so I think it's worth it.
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I know of many people who´ve bought old houses that needed "some" repair, which eventually turned out to cost a lot more than a no-fix house would`ve.. I don`t have consumer debt, and I plan on keeping it that way.. I know, easy said.. but I think that if we plan ahead, and save up a chunk of money as "house emergencies" aside from the downpayment savings, we should be able to stay away from some consumber debt when we one day get a house of our own.
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I wish you luck with your journey when purchasing a house. I think that a lot of television shows on DIY type channels make buying a fixer upper home look a lot easier than it is. If we could do it again, I'd rather pay a bit more for a house that was in great condition and needed cosmetic repairs, but I suppose you live and learn.
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2 of our bathrooms needed emergency remodeling and ate up most of our car fund, so we only had $6 to put down on a car we needed right THEN rather than cash for the whole thing,
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Sorry to hear about that Jenny. Murphy seems to love to kick you when you're down. I hope that everything ended up going okay afterwards.
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Such a great point that if you haven't prepared for Murphy, then you really aren't living below your means. Just because an expense isn't regular doesn't mean it shouldn't be part of your budget. Car repairs, home repairs, hospital trips, these things all happen and need to be planned for. Great personal story about how you came to realize this and how you've dealt with it.
Thanks Matt. That's something many personal finance gurus fail to mention. They tell you that an emergency fund is essential, but what expenses is it supposed to cover. Will three months worth of expenses cover a new roof? For some yes, but others no.
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My husband and I had the same lesson. Not with our home but with just life. A couple years ago, we had one thing after another and I used to feel like, what now.
Even in my Christmas Card this past year, my boss rote that this will be a better year. So far he's right, minus my recent trip to the ER and over night stay at the hospital…but I really think that was a reminder to keep a steady stream of money going in the emergency fund.
But, it's good to know I'm not the only one that didn't listen to that gut feeling and listened to people I thought knew what they were talking about….
My recent post A Trip to the ER Is NOT Conducive to paying off Debt
Sorry to hear about your previous year. I hope that this one and the rest will be many times better for you.
That experience has taught me to listen to my gut, it can often tell you when you're getting bad advice.
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I would agree that our house is an obstacle to our personal finances as well. There are just so many projects and repairs/upgrades needed, but we did get the house for a decent price, it will just require some cash outflows 😉 Our student loans are a big cash outflow each month, but it actually has motivated me to work harder at side income and at my job. Blessing and a curse, perhaps?
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The one benefit is of the house is that it's less expensive than if we were to rent out a similar sized living space. So even with all of the repairs, we're still ahead.
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"It also requires a plan and a rainy day fund for when emergencies rear their head." I think you hit the nail on the head their Justin! I think that planning ahead is what can really set you apart and best be prepared for the future. I also agree that so much of it comes down to taking those first steps. So many do not do that and it just sets them down a path which is much harder to recover from. Kee up the great work!
Thanks John. Too many people seem to "live in the moment" without thinking of what the future may hold. When problems occur they don't really know what to do. This is why planning is key.
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I remember The Money Pit! Funny in the movies, but I bet not in real life…
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It was a great movie, but definitely not one that I enjoy living. Hopefully mine will end like… well you know.
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I can totally relate. Our debt wasn't about overspending either, I was stupid and charged a bunch of money onto credit cards for my tuition and funded my education with more loans and lines of credit. It's still a tough pill to swallow.
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Ouch. I'm sorry to hear about that. I hope that you were able to get out from under it without paying too much in way of interest.
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Yep, agree about everything you said. You were sorta lied to by your agent house person, or, "coerced" or whatever. And now you have to pay for it. Hopefully the repairs are lessening and hopefully you can DIY for some of them. But it sucks. My wife and I bought our cheap little house and we knew it needed some work, but the price was worth it and I'm a blue collar guy so I can do it. It's worked out, but man, it's tough out there!
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I've learned to do quite a bit myself, but there are a few things that I am not comfortable with. I'm glad that your house ended up working out in the end. We've got a few more projects, some I can do, others we'll have to pay a contractor to finish.
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My parents faced a similar story when they bought their last house. It's important to trust your gut and look at the facts.
We are going to be buying a house pretty soon. I'm wondering what kind of house we will get for our buck.
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I wish you luck with your new purchase. We trusted our agent and the inspector, they both seemed nice and didn't lie to us. However, when it came to whether or a not a sale was going to be made…. well that's the part that got me. Definitely go with your gut.
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Great post —- I definitely agree. I'm also so tempted to throw everything at my student loan debt, but I know I have to be careful and really think about what I'm doing for sure to avoid making it worse!
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Thanks Cat. Paying off debt seems so simple. Yet our lives are all so very different. Debt sucks, but so does having to pay for an emergency through a credit card.
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Goos post. I am glad you took the steps needed to escape the debt monster. I hope you accomplish all your goals!
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Thanks Debtandthegirl. I really appreciate it, and cannot wait for that day!
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This is a great post. I think many people are okay with just living within their means monthly, but aren't planning at all for the future. I am a big proponent of having funds set aside for those large expenses and automatically adding to them each month (then taking money out when costs are incurred).
Thanks Jake. That's probably the best approach to take. Once our debt is paid off, we'll have several of these funds. It's a great way to ensure that you're not over doing it in one area and forgetting about others.
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Awesome post. My girlfriend and I also went through some visits with Murphy. He seemed to really like our cars. How odd is it, that when we finally got an emergency fund established he stopped visiting? Strange indeed.
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It does seem odd. Dave Ramsey says an Emergency Fund is Murphy repellent, although I'm not a fan of his, I'd like to test this out for myself.
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In my case it's unexpected medical bills (long story). We've just had to save more and give up certain things (like vacations!).
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Sorry to hear about your medical bills. I agree that it can be a matter of scrimping, saving and doing without. Once debt is gone though you'll be glad for sticking with it.
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Thanks for sharing your story Justin. An ample emergency fund is definitely a must!
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I agree Nick. I cannot wait for our debt to be gone and our fund to be fully funded.
First of all The Money Pit was one of my favorite movies too. I can't tell you how many times I've seen that movie.."turkey's done..so's the kitchen." 🙂 Mine has a little less to do with debt and more about the fact that I haven't been making as much money as a freelancer, so when certain things came up (last year's root canal), $3k in car repairs this year, medical expenses because of my shoulder, it really sets you back from achieving what you hoped sooner. But I soon came to realize that it's not Murphy…its just life. And it happens to everyone in some way. I think just the fact that knowing you aren't being treated unfairly by life makes you feel no so alone in your journey!
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Nick,
First, I think those people who mislead you and your wife ought to be b-slapped. And trust me, they will – karma always comes around. Second, you might want to shift your perspective a tad. These kinds of "murphy things" ALWAYS come around – even when you do have an ER fund (alth that makes it easier to handle) and even when you're "old". Been there, done that and looking back on it, I now see that that was all just part of the sum and substance of spouse's and my marriage/lives. Things get easier with an ER fund and with a good income/savings/investments etc – but they never really change. Just when you think you've covered every base – the world shifts and you're thrown new "problems" (a/k/a adventures) to deal with. Would you really want it any different? Best of luck
Thanks for sharing your story, Justin. You guys are always motivating for Rick and I as we work our way out of our debt crater.
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Thanks for sharing your story- makes me feel good that I am not the only one who has financial issues. There is a great book that really helped me get thinking about my life and my financial situation- "Practical Steps to Financial Freedom and Independence: Your road map to exiting the rat race and living your dreams" by Usiere Uko. If you haven't read it already, you should check it out! It is full of great tips for anyone wanting to get their finances back on track.
http://www.financialfreedominspiration.com/